INTERNAL AUDIT AS A TOOL IN ACHIEVING ORGANIZATIONAL OBJECTIVES (A CASE STUDY OF FIRST BANK NIGERIA PLC)
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INTERNAL AUDIT AS A TOOL IN ACHIEVING ORGANIZATIONAL OBJECTIVES
(A CASE STUDY OF FIRST BANK NIGERIA PLC)
CHAPTER ONE
INTRODUCTION
1.1
BACKGROUND OF STUDY
In view of the recent global recession of 2009-10, when
investments made by banks and financial institutions proved unsafe and almost
triggered a financial meltdown that required strong input and investment by
most democratic governments, the need for internationally regulated and
well-audited financial institutions are greater than ever. Therefore financial
institutions have started to concentrate on rigorous internal audit processes
undertaken by an internal audit team that conducts regular control self assessments.
According to Obazee, (2009), internal audit can be define as an independent
activity objectively, confirmatory, and consultant determined to add value and
imp rove the organization’s operations and by helping them to
achieve their objectives through a systematic and
disciplined method to evaluate and improve the effectiveness of risk management
and control processes and governance.
The financial institutions accountant has the responsibility
of developing systematic arrangements to assist management in the performance
of the services of the institution while the financial institution auditor has
among other duties the complementally role to examine whether management
actually performs that efficiently. The financial institutions auditor has to
satisfy himself that the presented have been prepared in accordance with
statutory and constitutional requirements and regulation and that proper
accounting practice have been observed in their compilation. With the growing size and complexity of financial
institutions in the recent years, the importance of the internal audit has
correspondingly increased so that it is today major factor in establishing the
quality of the financial institutions internal control and its development has
made considerable contribution to the improvement of the financial institutions
management (Klein, 2002). The internal audit is one of the important means for
management to confirm and verify the compliance of administrative units in the
financial and administrative policies, legislations, financial and
administrative systems and the adopted public policies. The internal audit has
been developed and increased the attention to it and standards, guidelines and
moral constitutions had been issued and became
one of the important units in most banks in the
world. Banks forms the chief
corner-stone of any financial system, and indeed of the economy of a nation
(James, 2003). At the heart of banking, is the audit function, this is evident by
the fact that all other departments are linked with the internal audit
department. Organizations have recognized internal audit as a tool for ensuring
effective working of the internal control system. Efficient performance entails
achieving goals with minimum waste of resources that is making the best use of
resources that is making the best use of money, time materials and people
(Lewin and Johnson 2000).
1.2 STATEMENT OF THE PROBLEM
Internal audit is an integral part of the internal control
system of financial institutions, at the heart of banking is the audit
function: This is evidenced by the fact that all other departments are linked
with internal audit department. The importance of internal audit system cannot
be overemphasized, since organizations have recognized internal audit function
as a tool for ensuring effective workings of the internal control system.
Okolo, (2001) describes internal audit functions as an aspect of control
mechanism, within a business, manned by specially assigned staff. However, in
Nigeria, the audit function in the banking sub-sector has not been fully taped.
This could be seen in the numerous cases of errors, intent to defraud and other
fraudulent acts that exist in the banking industry. It is therefore, no wonder
that the distress in the banking sub-sector in the nineties reflected lack of
effective control mechanism of the audit function in the banking industry. The
experience of failed banks in Nigeria and other nations have called for
reinforcement of audit and the strengthening of the control system in the
Nigerian banks. It is against this background that, this study seeks to
evaluate the role of internal auditing in enhancing efficient performance of
financial institutions in Nigeria considering the fact that, the banking
institutions is critical to the survival of any economy.
1.3 RESEARCH QUESTIONS
1. How does
internal audit practice help to achieve organizational objectives?
2. How does
internal auditor help to eradicate fraud in banking industry?
3. Is the internal
auditor completely independent of the management in organizations?
4. Is there any
significant relationship between internal audit and organizational objectives?
Does internal audit practice have positive impact on
organizational performance?
1.4 RESEARCH HYPOTHESES
The following hypotheses have been formulated and stated in
null form to be tested in the course of this study.
HYPOTHESIS I
Ho: Internal audit practice does not help to achieve
organizational objectives.
Hi: Internal audit practice helps to achieve organizational
objectives
HYPOTHESIS II
Ho: Internal Auditor does not help in eradication of
fraudulent activity.
Hi: Internal Auditor helps in eradication of fraudulent
activity.
1.5 OBJECTIVES OF THE STUDY
The objective of the study is to examine the impact of
internal audit activities on the performance of banks in Nigeria. The specific
objectives are stated below:
i. To examine the impact of internal
audit in the achievement of organizational objective.
ii. To
observe the relationship between internal audit and organizational objectives.
iii. To
investigate the impact of internal audit meetings on return on assets of banks
To investigate the impact of financial expert on return on
assets of banks
1.6 SIGNIFICANCE OF STUDY
The researcher now discovered that it will be reasonable to
encourage Nigeria business promoters (both public and private) to introduce a
proper and vital accounting system where fraud and all forms of embezzlements
can be checked in all the organizations.
1.7 SCOPE OF THE STUDY
Internal audit is vast and complex subject as it involves
internal accounting check and balancing, but the researcher concentrates her
study on role of internal auditing in on Nigerian economy with emphasis on
First Bank Nigeria Plc, Aduwawa Branch, Benin City.
1.8 LIMITATION OF THE STUDY
During the conduct of this research work, some factors posed
as constraints to the determined efforts of the research to carryout the
research study to such a depth and in such a manner that it ought to have been
carried out judging from its relevance to management, such factors include:
a. Management
Restriction: management more often than now allow access to information that
are considered very confidential in nature like detail information of
organization of the organizational corporate profile. As a result of the
restrictions the author was able to work with only the information that he has
access to.
b. Time
Constraint: Time is also another factor tat acts as hindrances in carrying out
this research study. This is as a result of the fact that other things were
still being attended to in the course of carrying out this research work.
c. Financial
Constraint: money also acts as a problem in the conduct of the research work.
Traveling expenses were incurred in getting the materials for the research
work. Also incurred, were expenses for the typing and distribution, building
and a lot of other expenses.
1.9 DEFINITION OF TERMS
1. Auditing – an
official examination of business and financial records to see that they are
true and correct.
2.
Fraud/Embezzlement – illegal methods of collecting/getting money from
organization (it is a criminal offence).
3. Ethnics –
rules, principles or order governing a profession.
4. Leader – person
in authority (Head of a country of organization)
5. Boss – a
superior officer having subordinate under him.
6. Management –
the art of running and controlling a business or similar organization.
According to Fubara (1986) views management as an activity carried on in an
environment that comprise of resources in capital and human, having alternative
uses.
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